FFIEC Issues Statement (i.e. Warning) on Regulatory Conversion Applications
Today, the Federal Financial Institutions Examination Council (FFIEC)[*] released a statement (the “Statement”), available here, reminding the banking community that charter conversions or changes in primary federal regulator should only be conducted for legitimate business and strategic reasons.
Judging by the Statement’s tone, the FFIEC is concerned that financial institutions are seeking charter conversions to avoid regulatory scrutiny, not for “legitimate” reasons. For example, the Statement notes that “rating downgrades and supervisory actions have become more frequent. To maintain the integrity of the regulatory system and the safety of financial institutions, it is essential that the opportunity for charter conversions does not undermine current or prospective supervisory actions.”
For charter conversion requests lodged by financial institution with “serious or material enforcement actions” pending, the Statement points out that such requests “should not be entertained.”
The Statement goes on to remind regulators of their duty to “consult with the FDIC (NCUA when appropriate), in its role as deposit insurer and receiver, and the Board, as the consolidated holding company supervisor, on any application involving an institution for which its current supervisor has either rated or proposes to rate that institution a 3, 4, or 5 . . . or has instituted or plans to institute a serious or material corrective program with respect to that institution.”
If an institution subject to an existing corrective action, the Statement points out that any ” prospective chartering authority agrees to a conversion, the FFIEC expects that corrective program’s requirements will be maintained and compliance overseen by the successor supervisor.”
Given the current economic conditions, especially in the banking community, it is unsurprising that an institution incurring harsh regulatory scrutiny would want to seek an a new regulator—if for no other reason that to gain a fresh start. The Statement suggests that any plans to change regulators will likely need to be postponed if your institution is subject to a serious enforcement action.
[*] The FFIEC’s membership is comprised of Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration (NCUA), collectively . The State Liaison Committee also joined the statement.
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